Final expenses of Corporation

[veritas]

I have a client who apparently had a corporation some years ago which had unpaid payroll taxes to the state. She is personally paying the payroll taxes, interest and penalties.

I have always in the past taken final expenses paid by shareholders as a Sch D item. What do you all think?

[Unregistered]

I have always done the same...

[cpadan]

my research says business bad debt

I am dealing with the same issue which I have researched on RIA and refered tax court case. From my research, this sounds like a business bad debt that can be used to offset ordinary income.

Dan

************************************************** ********************
¶ 17154. Stockholders' loans and guarantees as business debt for bad debt deduction purposes.
...........A stockholder-employee who lends to or guarantees for the corporation can treat the debt as a business debt if the loan is proximately related to his business of being an employee, 26 as where the employee made the loan to retain his job. 27 To be proximately related to the taxpayer's employment, the employment must be the “dominant” motive for the loan. 28


--------------------------------------------------------------------------------
21

Vreeland, Thomas, (1958) 31 TC 78 .
--------------------------------------------------------------------------------
22

Marti, Frank, (1952) PH TCM ¶52333 , 11 CCH TCM 1137 .
--------------------------------------------------------------------------------
23

Whipple, A.J. v. Com., (1963, S Ct) 11 AFTR 2d 1454 , 373 US 193 , 10 L Ed 2d 288 , 63-1 USTC ¶9466 .
--------------------------------------------------------------------------------
24

Biernbaum, Ralph, (1963) TC Memo 1963-210 , PH TCM ¶63210 , 22 CCH TCM 1046 .
--------------------------------------------------------------------------------
25

Rietzke, Eugene, (1963) 40 TC 443 .
--------------------------------------------------------------------------------
26

U.S. v. Generes, Edna, (1972, S Ct) 29 AFTR 2d 72-609 , 405 US 93 , 31 L Ed 2d 62 , 72-1 USTC ¶9259 .
--------------------------------------------------------------------------------
27

Trent, John v. Com., (1961, CA2) 7 AFTR 2d 1599 , 291 F2d 669 , 61-2 USTC ¶9506 , revg (1960) 34 TC 910 .
--------------------------------------------------------------------------------
28

U.S. v. Generes, Edna, (1972, S Ct) 29 AFTR 2d 72-609 , 405 US 93 , 31 L Ed 2d 62 , 72-1 USTC ¶9259 .
© Copyright 2006 RIA. All rights reserved.

[Armando Beaujolais]

"Semper ubi sub ubi"

Long ones are preferred in January up here in Minnesota.

[veritas]

I wore long ones once under a suit. Big Mistake!

[Unregistered]

I have a client who apparently had a corporation some years ago which had unpaid payroll taxes to the state. She is personally paying the payroll taxes, interest and penalties.

I have always in the past taken final expenses paid by shareholders as a Sch D item. What do you all think?

Can you or anyone else give a reference as to why it would go on Schedule D?

[Bees Knees]

Because a shareholder who owns stock in a corporation owns a capital asset. Upon liquidation of the corporation, including the shareholder's stock, the shareholder incurs a capital gain or a capital loss, depending on the FMV of assets received from the corporation over the basis in the stock. Since the shareholder received the assets upon liquidation, the shareholder also assumes personal liability for any unpaid debts of the corporation at the time of liquidation, up to the FMV of the assets received. Assuming the shareholder did not fully know those debts, gain or loss on the liquidation of stock would be without taking into consideration the unpaid debts. Once the unpaid debts are paid by the shareholder, you take a capital loss on Schedule D to reduce the previously reported gain or increase the previously reported loss on Schedule D when the stock was first liquidated.

It would be nice if all affairs were wrapped up in the year of liquidation, but that is not always the case.